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Corresponding Author:
Parvesh K. Chopra, International Centre for Development and Performance Management (ICDPM), Leeds, West Yorkshire, United Kingdom

Country Risk: A Theoretical and Empirical Analysis with Special Reference to Northern African Economies

Volume 68 - Issue 1, February 2015
(pp. 81-138)
JEL classification: C32, E22
Keywords: Country Risk, Kanji-Chopra Country Risk Measurement System, Country Contestability, Critical Country Risk Factors, Systemic Risk, Economic Risk, Political Risk, Financial Risk, Operating Risk, Multivariate Modelling, Systems Thinking, Path Analysis


Investing or trading in a country, whether domestic or foreign, involves some elements of risks and uncertainties depending upon its systemic, economic, financial, political, and business operating environments. Understanding the phenomenon of country risk is enormously vital for global investors in appraising risks versus opportunities of their global investment decisions. It is, therefore, necessary to evaluate countries and select the best and the most suitable one for the purpose of investment or business. Country risk analysis is both an art as well as science. Considering this, the present paper delineates numerous sources of country risk associated with business activities in a prospective country that may inauspiciously affect an initial investment, assets values, cash-flows or profits. It investigates theoretical linkages between country risk and country contestability. Based on systems thinking, structural equation modelling, and multivariate data analysis, this paper succinctly illustrates the theoretical scaffolding of Kanji-Chopra Country Risk Measurement System (KCCRMS). The conceptual notion of the phenomenon of country risk in the KCCRMS is holistic, multidimensional and multidisciplinary. The paper further divulges how critical country risk factors simultaneously intensify country risk in a multiplicative way or may interact producing reciprocal compensatory and attenuating effects. The KCCRMS’s structure, constructs, and relationships have been rigorously tested by means of data derived from various sources for an empirical analysis with special reference to Northern African economies namely Morocco, Algeria, Tunisia, Libya and Egypt. A country risk matrix has been constructed to illustrate the systemic risk, economic risk, political risk, financial risk and operating risk for each selected Northern African economy. Pathway analysis and sensitivity analysis on research questions have been performed for a detailed data analysis and interpretation. The paper constructs a composite country risk index for each country for the ratings of Northern African economies in terms of country risk and using the rating for investment decision making. Results from empirical analysis may be used to pinpoint the ways to minimise various risks of investing in these economies.

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Institute for International Economics
of the Genoa Chamber of Commerce

Istituto di Economia Internazionale
Camera di Commercio di Genova
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